This is an entirely free service. No payments are to be made. Also send me The Ultimate Guide to Profiting From Derivatives and sign me up for Profit Hunter,a free newsletter that focuses on identifying short term money making opportunities.Download NowSubscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.

Hindalco: Hurt by subdued LME prices

Nov 3, 2009

Performance summary

Operating profits decline by 38.7% YoY, leading to a fall in operating margins by 5.1% during the quarter.

Bottomline suffers a decline of 52.2% YoY mainly on account of lower operating profits coupled with significant fall in other income and higher depreciation.

Half yearly bottomline declines by 41.8% YoY on the back of 14.7% decline in the topline.

Standalone results

(Rs m)

2QFY09

2QFY10

Change

1HFY09

1HFY10

Change

Net sales

56,832

49,171

-13.5%

103,307

88,166

-14.7%

Expenditure

46,897

43,080

-8.1%

83,883

74,496

-11.2%

Operating profit (EBDITA)

9,935

6,092

-38.7%

19,424

13,670

-29.6%

EBDITA margin (%)

17.5%

12.4%

18.8%

15.5%

Other income

1,768

573

-67.6%

3,914

1,326

-66.1%

Interest (net)

855

663

-22.5%

1,616

1,345

-16.8%

Depreciation

1,592

1,659

4.2%

3,160

3,312

4.8%

Profit before tax

9,256

4,343

-53.1%

18,563

10,339

-44.3%

Extraordinary income/(expense)

Tax

2,056

903

-56.1%

4,396

2,093

-52.4%

Profit after tax/(loss)

7,200

3,441

-52.2%

14,167

8,246

-41.8%

Net profit margin (%)

12.7%

7.0%

13.7%

9.4%

No. of shares (m)

1,227.1

1,700.5

Diluted earnings per share (Rs)*

9.6

Price to earnings ratio (x)*

12.7

What has driven performance in 2QFY10?

Let us have a look as to how the two main segments of the company viz. Aluminium and Copper performed during the quarter:

Aluminium: On a standalone basis, the segment accounted for 34% of the company’s total revenues during 2QFY10 as compared to 37% in the previous fiscal. Segmental revenues declined by 22.2% YoY during the quarter. This was mainly on account of lower realisations that can be attributed to a 35% fall in LME prices over 2QFY09 levels. However, weaker rupee, higher volumes and improved product and geographic mix impacted positively. In fact, overall volumes sales in the segment grew by 15% YoY. PBIT of the segment was lower by 63.8% YoY, with margins falling by 18% as increase in cost of coal hurt the margins of the segment.

Copper: The copper segment’s revenues declined by 8.3% YoY, mainly on account of lower LME prices. However, the segment registered increase in its proportion to the company’s total revenues from 63% in 2QFY09 to 66% in 2QFY10. Total volumes sales in the segment grew by 13% YoY. PBIT of the segment grew by around 57.3% YoY, with margins improving by 2.8% despite the lower by product credit and lower TcRc charges during the quarter.

As far as the operating performance is concerned, lower than proportionate decline in the operating expenses as compared to topline resulted in EBITDA margin decline of 5.1% to 12.4% during the quarter. It may be noted that the figures pertaining to raw material costs and other expenditures are not strictly comparable as the company adopted AS 30 principle for all derivatives during the quarter.

Cost break-up…

(Rs m)

2QFY09

2QFY10

Change

1HFY09

1HFY10

Change

Raw materials

35,168

31,980

-9.1%

61,879

57,099

-7.7%

% sales

61.9%

65.0%

59.9%

64.8%

Staff cost

2,067

2,282

10.4%

3,928

4,352

10.8%

% sales

3.6%

4.6%

3.8%

4.9%

Power and fuel

5,262

5,223

-0.7%

10,028

9,433

-5.9%

% sales

9.3%

10.6%

9.7%

10.7%

Other expenditure

4,401

3,595

-18.3%

8,048

3,612

-55.1%

% sales

7.7%

7.3%

7.8%

4.1%

The bottomline declined by 41.8% YoY mainly on account of lower operating profits as well as subdued other income. Moreover, the increase in depreciation charges impacted the bottomline further. However, lower interest charges and tax out go had a favorable impact on the bottomline.

What to expect?

At current price of Rs 122, the stock is trading at a multiple of 0.7 times our expected FY12 book value per share. While the topline growth of the came in line with our estimates, the bottomline has been lower than our estimates. However we believe that it will not significantly affect our medium term price target as we use asset based valuation method to value the company. We continue to remain positive on the company.

OTHER USEFUL LINKS

MARKET STATS

ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.